Earthlink (NASDAQ:ELNK, news, filings) closed out a better than expected third quarter with the announcement that it is going on offense. The one-time dialup giant turned cloud and managed services provider says it will be pouring $45M into expanding both its fiber network and data center footprint.
Earthlink will be leasing new data center space for its cloud platform in San Jose, Chicago, Dallas, and South Florida, while enhancing their existing Rochester facility. The expansion will double their current footprint to eight markets.
Meanwhile, to hook it all up they’re adding capacity and new fiber routes, with 100G capabilities across the footprint. Within the former Deltacom footprint they’re adding nextgen optical gear between Miami and Virginia while increasing capacity to other key markets. Then they are adding fiber connectivity to seven major Texas markets, including the four big ones of Austin, Dallas, San Antonio, and Houston. Recently they also announced a new route between Chicago and Memphis, giving their north-south connectivity a key western route. Presumably the additional footprint is coming via dark fiber transactions, and the Chicago-Memphis in particular looks like it’s on the Zayo route picked up from 360networks.
As for Q3 earnings, Earthlink checked in with revenues of $334.8M, down 1% from the prior quarter but slightly above expectations. Earnings per share of $0.01 was also above expectations, which had been thought to come in slightly negative like last quarter. EBITDA rose sequentially to $66.4M. For the full year, Earthlink narrowed its revenue guidance to $277-283M and raised its earnings guidance to net income of $3-5M. Over the next five quarters they expect capex to be $215-225M, which includes the $45M for the expansion announced today.
Earthlink’s infrastructure expansion reflects increasing confidence in the company’s transformation into a cloud and managed services provider to the enterprise. 77% of their revenues come from the enterprise side of things now, and they’ve spent the past year putting all the pieces in place. That they are ready to put $45M into fiber and colo space says they think they are ready to head into the next phase, aiming to turn revenue trends back toward the growth side of things.
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